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Declared dividend should be classified in the Balance Sheet as a _______.
- a)Provision
- b)Current liability
- c)Reserve
- d)Current asset
Correct answer is option 'B'. Can you explain this answer?
Verified Answer
Declared dividend should be classified in the Balance Sheet as a _____...
Declared dividend should be classified in the Balance Sheet as a Current liability.
The declared dividend is a liability for the company because it represents an obligation to distribute funds to shareholders. It is recorded on the balance sheet as a current liability because it is typically paid out within one year.
Here are the reasons why declared dividend is classified as a current liability:
- Timing: Dividends are usually paid out within one year from the date of declaration, making them a short-term obligation.
- Payment: The company has a legal obligation to pay the declared dividend to its shareholders.
- Priority: Dividends have a higher priority than other liabilities, such as interest payments, and are usually paid before other obligations.
- Disclosure: Classifying declared dividend as a current liability provides transparency to investors and stakeholders about the company's financial obligations.
Other options like provision, reserve, or current asset are not appropriate classifications for declared dividends:
- Provision: Provisions are typically set aside for anticipated future expenses or losses, and declared dividends do not fall under this category.
- Reserve: Reserves are usually created to strengthen the financial position of the company or for future investments, and declared dividends do not serve this purpose.
- Current asset: Current assets are resources that are expected to be converted into cash within one year, and declared dividends do not meet this criteria.
Therefore, the correct classification for declared dividend in the balance sheet is as a current liability.
Most Upvoted Answer
Declared dividend should be classified in the Balance Sheet as a _____...
Classification of Declared Dividend in Balance Sheet:
Current Liability:
- Declared dividend should be classified as a current liability on the balance sheet.
- This is because the dividend is a payable amount to the shareholders, which needs to be paid within a short period, typically within one year.
- Current liabilities represent the obligations of a company that are expected to be settled within the normal operating cycle of the business or within one year.
Other Options:
- Provision: Provisions are liabilities of uncertain timing or amount, and declared dividend is a known amount that will be paid to shareholders.
- Reserve: Reserves are appropriations of profit for a specific purpose, while dividends are distributions of profits to shareholders.
- Current Asset: Current assets are resources that are expected to be realized in cash or consumed within one year, while declared dividend represents an obligation to pay out cash to shareholders.
Therefore, the most appropriate classification for declared dividend in the balance sheet is as a current liability.
Current Liability:
- Declared dividend should be classified as a current liability on the balance sheet.
- This is because the dividend is a payable amount to the shareholders, which needs to be paid within a short period, typically within one year.
- Current liabilities represent the obligations of a company that are expected to be settled within the normal operating cycle of the business or within one year.
Other Options:
- Provision: Provisions are liabilities of uncertain timing or amount, and declared dividend is a known amount that will be paid to shareholders.
- Reserve: Reserves are appropriations of profit for a specific purpose, while dividends are distributions of profits to shareholders.
- Current Asset: Current assets are resources that are expected to be realized in cash or consumed within one year, while declared dividend represents an obligation to pay out cash to shareholders.
Therefore, the most appropriate classification for declared dividend in the balance sheet is as a current liability.
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Community Answer
Declared dividend should be classified in the Balance Sheet as a _____...
When dividend is declared by the company, it becomes liability for the company to provide dividend to shareholders. Until the dividend is given, it remains liability.
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Declared dividend should be classified in the Balance Sheet as a _______.a)Provisionb)Current liabilityc)Reserved)Current assetCorrect answer is option 'B'. Can you explain this answer?
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